Sorry, bulls:
“No deal.”
That’s what Senate Majority Leader Mitch McConnell told bipartisan policymakers after they presented him with a $908 billion proposal. House Majority Leader Steny Hoyer, meanwhile, called for the House to adjourn until at least next Tuesday.
The bipartisan lawmakers say they’ll continue to pursue other options, but members of Congress external to the group aren’t overly convinced that they can pull it off.
“They’re just not going to be able to thread the needle,” said Senate Majority Whip John Thune.
“That’s my view, and maybe I’m wrong and I hope I am.”
As a result, the year’s almost over and a stimulus deal still seems out of reach.
McConnell says Democrats are “moving goalposts” on aid package requirements. House Speaker Nancy Pelosi insists that Republicans need to accept her party’s demand before time runs out.
If the two sides can’t come to terms, that would mean not only will the U.S. not get a stimulus deal this year, but it could take quite a while before an agreement is reached in 2021.
It’s something that’s casting new doubts over the U.S. economy’s ability to recover moving forward. And, more immediately, the holiday season as 12 million Americans stand to lose unemployment benefits in the coming weeks.
McConnell said this morning that he hopes “our colleagues let Congress deliver more help soon.”
“A lot of Americans simply can’t afford to wait,” he added. Pelosi shared similar remarks.
Making matters worse is a post-Brexit trade deal with the European Union. Or, in this case, the fact that a trade deal might not happen. U.K. Prime Minister Boris Johnson said his country should be prepared for a scenario in which no such deal is agreed upon. Johnson’s comments, which caught the attention of analysts spanning the globe, injected additional uncertainty into an already shaky market.
“This might just be talk, as a way of trying to put pressure on the UK but nonetheless, traders have reacted by dropping stocks,” David Madden, market analyst at CMC Markets UK, wrote.
Unless the U.K. and E.U. can come to terms by January 1st, all commercial and trading ties will be severed between the two economies. The fallout would certainly spill over to neighboring continents as global markets react to the change in scenery.
The Brexit trade talks, along with the ongoing stimulus gridlock, is enough to make bulls swear off buying altogether.
But instead of shifting bearish, sentiment has only gotten more bullish over the last few days.
The 5-day Cboe equity-only put/call ratio, which measures the average number of puts (bearish options contracts) to calls (bullish options contracts) over the last 5 days, has fallen to a record low of 0.37. The last time that happened was in June, just before the market continued its post-Covid run. Back then, the market had only recovered roughly half of its pandemic-induced losses.
This time, however, the major indexes are trading near their all-time highs. Job growth has stalled and uncertainty springs eternal. Money managers are now warning clients to watch out for “bull traps” in the event that stocks continue climbing.
“Investor sentiment has unfortunately gotten quite bullish over the last month or so. This is something to continue to keep an eye on as we look for ‘frothiness’ in the market,” said strategists at Bespoke Investment Group.
And they’re absolutely right, the recent rally is mostly comprised of “froth.” Investors priced-in a full economic recovery and sizable stimulus package well ahead of schedule. Long-term, that shouldn’t have too big of an impact on equities.
Any short-term shakeup, however, could scorch overzealous bulls in quick succession.
With so much up in the air, there’s no telling what will happen as we march toward the new year. That’s a recipe for disaster in a market driven entirely by headlines.
Which, at present, are also the only things keeping bulls in the game.
